Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto included in this Form 10-Q and in conjunction with our 2025 Form 10-K.

OVERVIEW

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We are an energy infrastructure company with a primary focus on midstream natural gas compression and a commitment to helping our customers produce, compress and transport natural gas in a safe and environmentally responsible way. We are a premier provider of natural gas compression services, in terms of total compression fleet horsepower, to customers in the energy industry throughout the U.S., and a leading supplier of aftermarket services to customers that own compression equipment in the U.S. Our business supports a must-run service that is essential to the production, processing, transportation and storage of natural gas.

We operate in two business segments: contract operations and aftermarket services. Our contract operations business primarily includes designing, sourcing, owning, installing, operating, servicing, repairing and maintaining our owned fleet of natural gas compression equipment to provide natural gas compression services to our customers. Our aftermarket services business provides a full range of services to support the compression needs of our customers that own compression equipment, including operations, maintenance, overhaul and reconfiguration services and sales of parts and components.

Significant 2026 Transactions

2028 Notes Redemption

On April 1, 2026, we repurchased our 2028 Notes. The 2028 Notes were redeemed at 100% of their $800.0 million aggregate principal amount plus accrued and unpaid interest of approximately $25.0 million with borrowings under the Credit Facility. We recorded a debt extinguishment gain of $0.7 million during the second quarter of 2026 due to the write-off of unamortized debt premium of $4.0 million, which was partially offset by the write-off of unamortized debt issuance costs of $3.3 million. See Note 7 ("Long-Term Debt") for further details.

2034 Notes

On January 21, 2026, we completed a private offering of $800.0 million aggregate principal amount of 6.0% senior notes due 2034 and received net proceeds of $789.4 million after deducting issuance costs. In January 2026, the approximately $10.6 million of issuance costs were recorded as deferred financing costs within long-term debt in our condensed consolidated balance sheets and are being amortized to interest expense in our condensed consolidated statement of operations over the term of the notes. The net proceeds were used to repay borrowings outstanding under our Credit Facility. See Note 7 ("Long-Term Debt") for further details.

Operating Highlights

Non-GAAP Financial Measures

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Management uses a variety of financial and operating metrics to analyze our performance. These metrics are significant factors in assessing our operating results and profitability and include the non-GAAP financial measure of adjusted gross margin.

We define adjusted gross margin as total revenue less cost of sales, exclusive of depreciation and amortization. Adjusted gross margin is included as a supplemental disclosure because it is a primary measure used by our management to evaluate the results of revenue and cost of sales, exclusive of depreciation and amortization, which are key components of our operations. We believe adjusted gross margin is important because it focuses on the current operating performance of our operations and excludes the impact of the prior historical costs of the assets acquired or constructed that are utilized in those operations, the indirect costs associated with our SG&A activities, our financing methods and income taxes. In addition, depreciation and amortization may not accurately reflect the costs required to maintain and replenish the operational usage of our assets and therefore may not portray the costs of current operating activity. As an indicator of our operating performance, adjusted gross margin should not be considered an alternative to, or more meaningful than, gross margin, net income or any other measure presented in accordance with GAAP. Our adjusted gross margin may not be comparable to a similarly titled measure of other entities because other entities may not calculate adjusted gross margin in the same manner.

Adjusted gross margin has certain material limitations associated with its use as compared to net income. These limitations are primarily due to the exclusion of SG&A, depreciation and amortization, long-lived and other asset impairment, restructuring charges, interest expense, transaction-related costs, gain on sale of assets, net, other income, net, provision for income taxes and equity in net loss of unconsolidated affiliate. Because we intend to finance a portion of our operations through borrowings, interest expense is a necessary element of our costs and our ability to generate revenue. Additionally, because we use capital assets, depreciation expense is a necessary element of our costs and our ability to generate revenue, and SG&A is necessary to support our operations and required corporate activities. To compensate for these limitations, management uses this non-GAAP measure as a supplemental measure to other GAAP results to provide a more complete understanding of our performance.

The reconciliation of net income to adjusted gross margin is as follows:

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The following table reconciles gross margin, the most directly comparable GAAP measure, to adjusted gross margin:

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RESULTS OF OPERATIONS

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Summary of Results

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Revenue was $373.8 million and $347.2 million during the three months ended March 31, 2026 and 2025, respectively. The increase in consolidated revenue was primarily due to increased revenue from our contract operations business. See "Contract Operations" and "Aftermarket Services" below for further details.

Net income was $73.8 million and $70.9 million during the three months ended March 31, 2026 and 2025, respectively. The increase was primarily driven by higher adjusted gross margin from our contract operations business, a decrease in transaction-related costs and a higher gain on sale of assets, net. These increases were partially offset by increases in depreciation and amortization, SG&A, long-lived and other asset impairment and provision for income taxes.

Three Months Ended March 31, 2026 Compared to Three Months Ended March 31, 2025

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Contract Operations

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Revenue in our contract operations business increased approximately $30.5 million due primarily to the compression units acquired in the NGCS Acquisition as well as higher rates.

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The increase in cost of sales, exclusive of depreciation and amortization, was primarily due to a $4.0 million increase in employee compensation and benefits expense and a $1.9 million increase in parts expense due to compression units acquired in the NGCS Acquisition. These increases were partially offset by a decrease of $2.5 million in lube oil expenses primarily due to lower prices, partially offset by an increase in volumes purchased.

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The increases in adjusted gross margin and adjusted gross margin percentage were mainly driven by revenue growth that outpaced the increase in cost of sales, exclusive of depreciation and amortization.

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Aftermarket Services

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Revenue in our aftermarket services business decreased primarily due to reduced customer demand for major maintenance service activity.

The decrease in cost of sales, exclusive of depreciation and amortization, was primarily driven by decreased service activity, including differences in the scope, timing and type of services performed.

Costs and Expenses

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Selling, general and administrative. SG&A increased for the three months ended March 31, 2026 primarily due to higher long-term incentive compensation expense, including a $4.1 million increase in cash-settled incentive compensation expense as a result of an increase in our stock price and a $3.7 million acceleration of expense recognition for long-term incentive compensation pursuant to an executive retention agreement, as well as a $1.3 million increase attributable to higher employee benefits and compensation expense. These increases were partially offset by a $2.0 million decrease in professional fees.

Depreciation and amortization. Depreciation and amortization increased primarily due to fixed assets additions, including depreciation and amortization associated with the compression units and intangible assets acquired in the NGCS Acquisition. The increase was partially offset by a decrease in depreciation associated with assets reaching the end of their depreciable lives as well as compression and other asset sales.

Long-lived and other asset impairment. We periodically review the future deployment of our idle compressors for units that are not of the type, configuration, condition, make or model that are cost efficient to maintain and operate. We also evaluate for impairment our idle units that have been culled from our compression fleet in prior years and are available for sale. The following table presents the results of our compression fleet impairment review, as recorded in our contract operations segment:

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Restructuring charges. Restructuring charges of $0.1 million during the three months ended March 31, 2026 consisted of property disposal and closure costs, whereas restructuring charges of $0.7 million during the three months ended March 31, 2025 consisted of severance, property disposal and closure costs. See Note 12 ("Restructuring Charges") for further details.

Interest expense. Interest expense increased for the three months ended March 31, 2026 primarily due to a higher average outstanding balance of long-term debt, including the 2034 Notes. This increase was partially offset by the 2027 Notes Redemption and a decrease in the weighted average effective interest rate.

Transaction-related costs. We incurred professional fees, compensation and other costs related to the NGCS Acquisition during the three months ended March 31, 2026 and 2025 of $0.3 million and $2.9 million, respectively. We incurred compensation and other costs related to the TOPS Acquisition during the three months ended March 31, 2026 and 2025 of $0.3 million and $1.1 million, respectively. See Note 3 ("Business Transactions") for further details.

Gain on sale of assets, net. Gain on sale of assets, net increased for the three months ended March 31, 2026, primarily due to gains of $8.2 million and $1.9 million on compression and other asset sales, respectively, compared to gains of $7.1 million and $0.2 million on compression and other asset sales, respectively, during the three months ended March 31, 2025.

Provision for Income Taxes

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Provision for income taxes increased during the three months ended March 31, 2026 primarily due to the tax effect of the increase in book income and the limitation on executive compensation partially offset by the benefit from equity-settled long term incentive compensation.

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LIQUIDITY AND CAPITAL RESOURCES

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Overview

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Our ability to fund operations, finance capital expenditures, pay dividends and fund share repurchases depends on the levels of our operating cash flows and access to the capital and credit markets. Our primary sources of liquidity are cash flows generated from our operations and our borrowing availability under our Credit Facility. Our cash flow is affected by numerous factors including prices and demand for our services, oil and natural gas exploration and production spending, conditions in the financial markets and other factors. We have no near-term maturities and believe that our operating cash flows and borrowings under the Credit Facility will be sufficient to meet our liquidity needs in the next twelve months and beyond.

We may from time to time seek to retire or purchase our outstanding debt through cash purchases and/or exchanges for equity or debt securities in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, may be material, will be upon terms and prices as we may determine and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.

Cash Requirements

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Our contract operations business is capital intensive, requiring significant investment to maintain and upgrade existing operations. Our capital spending is primarily dependent on the demand for our contract operations services and the availability of the type of compression equipment required for us to provide those contract operations services to our customers. Our capital requirements have consisted primarily of, and we anticipate will continue to consist of, the following:

Capital Expenditures

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Growth Capital Expenditures. The majority of our growth capital expenditures are related to the acquisition cost of new compressors when our idle equipment cannot be reconfigured to economically fulfill a project's requirements and the new compressor is expected to generate economic returns that exceed our cost of capital over the compressor's expected useful life. In addition to newly-acquired compressors, growth capital expenditures include the upgrading of major components on an existing compression package where the current configuration of the compression package is no longer in demand and the compressor is not likely to return to an operating status without the capital expenditures. These expenditures substantially modify the operating parameters of the compression package such that it can be used in applications for which it previously was not suited.

Growth capital expenditures were $64.9 million and $139.4 million for the three months ended March 31, 2026 and 2025, respectively.

Maintenance Capital Expenditures. Maintenance capital expenditures are related to major overhauls of significant components of a compression package, such as the engine, electric motor, compressor and cooler, which return the components to a like-new condition, but do not modify the application for which the compression package was designed.

Maintenance capital expenditures were $34.0 million and $22.8 million during the three months ended March 31, 2026 and 2025, respectively. The increase in maintenance capital expenditures was primarily due to an increase in scheduled and unscheduled maintenance activities due to maintenance cycle requirements and the addition of the compression units acquired in the NGCS Acquisition, partially offset by lower make-ready investment.

Projected Capital Expenditures. We currently plan to spend approximately $400 million to $445 million on capital expenditures during 2026, primarily consisting of approximately $250 million to $275 million for growth capital expenditures and approximately $125 million to $135 million for maintenance capital expenditures.

Returning Capital to Stockholders

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We continue to return capital to stockholders through quarterly dividends and share repurchases. On April 30, 2026, our Board of Directors declared a quarterly dividend of $0.22 per share of common stock to be paid on May 19, 2026 to stockholders of record at the close of business on May 12, 2026. Any future determinations to pay cash dividends to our stockholders will be at the discretion of our Board of Directors and will be dependent upon our financial condition, results of operations and credit and loan agreements in effect at that time and other factors deemed relevant by our Board of Directors. In October 2025, our Board of Directors approved an additional increase to our Share Repurchase Program of $100.0 million through December 31, 2026, and as of March 31, 2026, available capacity under the Share Repurchase Program was $113.2 million. The actual number of shares repurchased will depend on prevailing market conditions, alternative uses of capital and other factors, and will be determined at management's discretion.

2028 Notes Redemption

On April 1, 2026, we repurchased our 2028 Notes. The 2028 Notes were redeemed at 100% of their $800.0 million aggregate principal amount plus accrued and unpaid interest of approximately $25.0 million with borrowings under the Credit Facility. We recorded a debt extinguishment gain of $0.7 million during the second quarter of 2026 due to the write-off of unamortized debt premium of $4.0 million, which was partially offset by the write-off of unamortized debt issuance costs of $3.3 million.

2027 Notes Redemption

In November 2025, we repurchased our 2027 Notes. The 2027 Notes were redeemed at 100% of their $300.0 million aggregate principal amount plus accrued and unpaid interest of approximately $2.6 million with borrowings under the Credit Facility. We recorded a debt extinguishment loss related to unamortized debt issuance costs of $0.9 million during the fourth quarter of 2025.

Sources of Cash

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Credit Facility

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In December 2025, we amended our Amended and Restated Credit Agreement to, among other things, remove the 0.10% per annum credit spread adjustment that was previously included in the calculation of the interest rate applicable to the loans made under the Credit Facility, decrease the applicable margin for all borrowings by 0.25% per annum such that the applicable margin for borrowings varies and decrease the commitment fee payable on the daily unused amount of the Credit Facility from 0.375% per annum to 0.25% per annum when less than 50% of the Credit Facility is utilized.

In May 2025, we amended our Amended and Restated Credit Agreement to, among other things, increase the borrowing capacity of the Credit Facility from $1.1 billion to $1.5 billion and provide for the ability for the borrowers to request additional increases in the aggregate commitments under the Credit Facility to a total amount not to exceed $2.3 billion (with any increase being at the discretion of the lenders and subject to the satisfaction of certain conditions set forth in the Amended and Restated Credit Agreement).

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During the three months ended March 31, 2026 and 2025, our Credit Facility had an average daily balance of $314.6 million and $460.6 million, respectively. The weighted average annual interest rate on the outstanding balance under the Credit Facility was 5.1% and 5.8% at March 31, 2026 and December 31, 2025, respectively. As of March 31, 2026, there were $2.6 million letters of credit outstanding under the Credit Facility and the applicable margin on borrowings outstanding was 1.4%.

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As of March 31, 2026, we were in compliance with all covenants under our Amended and Restated Credit Agreement. Additionally, all undrawn capacity on our Credit Facility was available for borrowings as of March 31, 2026.

2034 Notes

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On January 21, 2026, we completed a private offering of $800.0 million aggregate principal amount of 6.0% senior notes due 2034 and received net proceeds of $789.4 million after deducting issuance costs. In January 2026, the approximately $10.6 million of issuance costs were recorded as deferred financing costs within long-term debt in our condensed consolidated balance sheets and are being amortized to interest expense in our condensed consolidated statement of operations over the term of the notes. The net proceeds were used to repay borrowings outstanding under our Credit Facility.

Cash Flows

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Our cash flows, as reflected in our condensed consolidated statements of cash flows, are summarized below:

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Operating Activities

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The increase in net cash provided by operating activities was primarily due to tax refund receipts of $35.4 million and higher adjusted gross margin from our contract operations business as a result of an overall increase in levels of activity.

Investing Activities

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The decrease in net cash used in investing activities was primarily due to a $54.7 million decrease in capital expenditures, as well as an $18.4 million increase in proceeds from the sale of property, plant and equipment.

Financing Activities

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The change to net cash used in financing activities from net cash provided by financing activities was primarily due to net repayments on our Credit Facility of $821.7 million, payment of debt issuance costs of $10.5 million, a $5.7 million increase in dividends paid to stockholders and a $4.2 million increase in shares repurchased under the Share Repurchase Program. These increases were partially offset by $800.0 million of gross proceeds from the 2034 Notes.

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